Sales Down At Getty

Getty Images, Inc. announced today that they expect revenue for the first quarter ended March 31,2001, to be approximately $124 million, which is about five percent below the $130 to $133 million guidance provided by thecompany on February 8th

This per-announcement of earnings is required by the SEC when a company anticipates they will notreach previously announced numbers.

Revenue for the 4th quarter 2000 was $124.9 million and Getty had predicted that sales would be$133 million. The 4th quarter was the first time in the history of the company that sales werebelow estimates. The 1st quarter 2001 will be the second straight quarter where sales have beenbelow estimates.

Jonathan Klein, CEO of Getty Images blamed, "The slowdown in the U.S. economy, and particularly inmarketing and advertising spending..." for the poor results. He also indicated in the conferencecall that the slowdown had been primarily in the United States. So far Getty has not experienceda falloff of sales in Europe." Since 59% of Getty's 2000 sales were in the U.S. that wouldindicate that the U.S. drop in sales might have been as high as 6.7% of total salesquarter-to-quarter.

In addition, if this drop was not evident on February 8th when Getty provided its last guidance toinvestors, there has been a precipitous drop in sales in only two months.

Business Outlook

While the company said it intends to continue its practice of not updating forward-lookingstatements until the next quarterly results announcement, as of April 10, 2001 the companyanticipates that 2001 revenue will be in the range of $510 million to $540 million. This was downfrom the February 8th estimate of $550 to $565 million.

For the second quarter of 2001, the company expects to report revenue of $120 million to $130million, and merchant banking firm Thomas Weisel Partners is estimating it at $122.4 million --lower than the sales of the current quarter. If Getty's sales for 2001 turn out to be in the rangeof $510 million it would be basically zero growth for the entire year. On a pro-forma basis(because Getty didn't own VCG for the whole of 2000) zero growth would be about $505 million for2001, and Getty will have additional revenue from some small acquisitions they made in the 4thquarter 2000.

It is worth noting what sales have been for the last four quarters since Getty stopped acquiringmajor companies. The were:

2nd QT 2000

3rd QT 2000

4th QT 2000

1ST QT 2001

$123.6 million

$127 million

$129.4 million

$124 million

This is not a picture of dynamic growth and the industry undoubtedly has a difficult year ahead ofuntil the economy turns around.

Klein said, "During the first quarter, our customers, primarily in the U.S., began to experiencedelays and cancellations in advertising and marketing expenditures, resulting in lower thanexpected sales. In addition, our customers have expressed limited visibility regarding theiroutlook for the remainder of the year. Therefore, we are lowering our financial guidance for 2001.We will also continue our rigorous efforts to reduce costs and increase efficiencies within ourorganization while maintaining our high level of customer service and support."

EBITDA margins are projected at approximately 22%. The original estimate was 23%. "Getty hastypically been able to manage expenses to beat the bottom line, but this shortfall in revenue wastoo much to make up," according to Keith Gay of Thomas Weisel Partners. Photographers and staffcan expect Getty to be very aggressive at cutting costs in the next few months as they attempt toraise EBITDA margins because this number is critical to their future approval by the investmentcommunity.

["EBITDA" is defined as earnings before income taxes, depreciation, amortization, interest,exchange gains and losses and, when applicable, loss on impairment, debt conversion expense,integration and restructuring costs, extraordinary items and other income and expenses. EBITDAshould not be considered as an alternative to operating income, as defined by generally accepted accounting principles, as an indicator of our operating performance, or to cash flows asa measure of our liquidity.]

Klein continued, "We remain confident in our strategy and in the power of our business model. Witha large customer base, a strong market position, significant revenues, attractive margins, strongoperating cash flow and a solid cash position, we have the resources to manage through thischallenging economic environment successfully and to continue to expand our global leadership in the visual contentmarket."

Getty Images will announce full first quarter financial results on Wednesday, April 25. At that time, the company will provide updated guidance for the remainder ofthe year.

Jim Pickerell is founder of www.selling-stock.com, an online newsletter that publishes daily. He is also available for personal telephone consultations on pricing and other matters related to stock photography. He occasionally acts as an expert witness on matters related to stock photography. For his current curriculum vitae go to: http://www.jimpickerell.com/Curriculum-Vitae.aspx.

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